Call to Order and Roll Call
The 1st meeting of the Interim Joint Committee on Economic Development and Tourism was held on Wednesday, June 19, 2013, at 2:00 PM, at the Northern Kentucky Convention Center. Senator Mike Wilson, Chair, called the meeting to order, and the secretary called the roll.
Present were:
Members: Representative Keith Hall, Co-Chair; Senators Ernie Harris, Dennis Parrett, and Mike Wilson; Representatives Lynn Bechler, Larry Clark, Mike Denham, Jeffery Donohue, Jim Gooch Jr., Mike Harmon, Richard Heath, Dennis Horlander, Dennis Keene, Thomas Kerr, Kim King, Martha Jane King, Brian Linder, Tom McKee, David Osborne, John Short, Arnold Simpson, Fitz Steele, Russell Webber, and Jill York.
Guests: Steve Stevens, President and Chief Executive Officer (CEO), Northern Kentucky Chamber of Commerce; Gretchen Landrum, Executive Director, Northern Kentucky Convention Center; Candace McGraw, CEO, Cincinnati/Northern Kentucky International Airport; Joe Wind, Vice President, Government and Community Relations and Janet Harrah, Senior Director, Center for Economic Analysis and Development, Northern Kentucky University; Ron Crouch, Research Director, Kentucky Education and Workforce Development Cabinet; Eric Rose, Vice President and Executive Director, Newport Aquarium; and Dan Tobergte, President and CEO, Northern Kentucky Tri-Ed.
LRC Staff: John Buckner, Lou DiBiase, and Dawn Johnson
Northern Kentucky Chamber of Commerce
Steve Stevens, President and CEO of the Northern Kentucky Chamber of Commerce, thanked members for their work with the northern Kentucky area in helping it become an economic engine.
Mr. Stevens spoke of the success of the Cincinnati/Northern Kentucky Airport, including its growing air cargo industry, which gives it the potential to make Kentucky the country’s leader in international logistics. Mr. Stevens commended the legislature on their work to produce needed and substantative policy changes to advance the Commonwealth during the past session. During the next months, the Northern Kentucky Chamber’s main focus will be the construction of the new Brent Spence Bridge corridor, which will provide the most positive benefit to the region, as well as comprehensive tax reform to increase Kentucky’s competitiveness.
Northern Kentucky Convention Center
Gretchen Landrum, Executive Director of the Northern Kentucky Convention Center, addressed the need to expand the center to meet area needs. Ms. Landrum noted the success of the center and its self-sufficiency in refurbishments and renovations. Over the past 15 years, the center has hosted over 2,500 events and supports over 350 jobs in the community, with an economic impact of over $1 billion. Ms. Landrum discussed the economic impact and fiscal return on investment of the proposed expansion. Based on a $35 million investment, the fiscal return would be 2.7 percent annually, or $930,000. The total economic return from the Center would be between $4.5 to $5.7 million annually. The economic loss for not expanding is approximately $50 million due to a lack of convention center space.
Responding to Representative Clark’s question Ms. Landrum said the room tax is approximately 18 percent of the convention center’s budget.
Cincinnati/Northern Kentucky International Airport
Candace McGraw, CEO, Cincinnati/Northern Kentucky International Airport (CVG), gave an overview of the airport’s services. The airport does not accept local taxes but is a self-sustaining revenue generator for the Commonwealth. A recent economic impact study is available online. The airport generates approximately $3.6 billion annually toward the local economy, and is the fastest growing cargo airport in the United States. With the UPS and DHL presence, the airport is the logistics hub of North America. There are approximately 174 daily nonstop flights to 47 cities. Thirty-seven of the top 40 business markets are served on a daily basis. CVG is still the only nonstop service to Europe in Ohio, Indiana, and Kentucky.
Ms. McGraw said that, to improve sustainability, the primary goal is diversification of air carrier service by focusing on increasing local origination traffic. Last month, Frontier Airlines, the first low cost carrier out of CVG in 15 years, began service. It is performing very well and is booked at 100 percent capacity through the summer.
US Airways has launched additional service to Philadelphia and Washington, DC. Delta Airlines has streamlined some scheduling issues with their west coast service. DHL recently completed a $105 million expansion at CVG--their North American Global Superhub. The airport has completed a $36 million, 16-gate terminal consolidation that has been greatly successful. The airport Master Plan update, a facilities blueprint through 2035, has just been completed. Ms. McGraw said CVG operates under a use and lease agreement that has remained the same for over 40 years. As the agreement expires in 2015, the airport is negotiating a new agreement. Enhanced concession offerings have resulted in increased revenues.
Northern Kentucky University
Joe Wind, Vice President, Government and Community Relations, Northern Kentucky University (NKU), discussed job creation. Focusing on the development of the right labor force will greatly increase the state’s economic output. The state is challenged to not only increase the number of trained professionals for newly created jobs, but also to replace those who leave the workforce. There is high demand for trained professionals in healthcare and information technology; however, the state has not identified the investment necessary for capacity building in these areas. NKU’s new College of Informatics needs $3 to $4 million in a recurring allocation to expand capacity for personnel and technology to meet the current talent and applied research requests from the community. Due to state funding cuts and tuition caps, the university is unable to fund this capacity building request. Enrollment has doubled in these key programs, but with nearly 100 percent placement of the 409 graduates in 2013, the region does not have the students to supply the additional talent to take advantage of opportunities for business growth. The same situation is mirrored in health care professions.
Mr. Wind said the state needs post secondary education public policy and investment strategy that supports the primary talent and applied research goals of the commonwealth. Each higher education institution must be incentivized to align talent development strategy with opportunities that exist within their region. The state must develop outcomes based funding models. These model appropriate all or a portion of an institution’s existing funds and additional state funds based on level of productivity on very selective metrics. States implementing this plan include Indiana, Mississippi, Nevada, Ohio, and Tennessee.
Ms. Janet Harrah, Senior Director, Center for Economic Analysis and Development at Northern Kentucky University, said the state’s number one opportunity is job growth, however it must first recognize that job growth is regional. Finding and retaining talent are the keys for long-term success in the state. For Kentucky to attract and retain growing businesses and industry that will generate job growth, a strategy that is targeted at regional needs around the talent supply is needed. Most regions are experiencing a mismatch between the skills of workers and jobs available. Many workers are skilled and trained for the old economy rather than available jobs. The state must invest to educate toward the new economy’s high demand jobs which are occupational such as welders, machinists, and electricians. Occupational groups such as information technology and mathematical scientists are growing rapidly as well as the education field. Replacement needs will outnumber new net job growth by 2:1. Of interest are occupations that are high wage, have numerous job openings, and are growing relatively fast.
Mr. Wind said Kentucky needs to act now as businesses location decisions are being made based on the concentration of qualified talent to meet the demand of the technology advanced world economy. Nearly all states are focusing on increasing education levels to maintain and improve their economic competitiveness and are doing this through focused outcomes of the graduates they need.
Chairman Wilson noted that 30 percent of Microsoft’s workforce are on work visas because the demand cannot be met otherwise.
Representative Clark told members that last year university presidents met to discuss future higher education needs of Kentucky. He recommended they meet with legislative leadership to share specific recommendations.
Responding to Representative Simpson’s question, Mr. Wind said Kentucky’s higher education leaders should use the outcomes-based model rather than have needs dictated by others.
Demographics and Jobs of the Future
Ron Crouch, Research Director, Kentucky Education and Workforce Development Cabinet, spoke on demographics and jobs of the future. He explained that the needs of a rapidly increasing older population cannot be met by the current and provided population data for each Kentucky county. The United States needs to return to what is successful—manufacturing, invention, and innovation. Not everyone needs to acquire a college degree. Trade occupations such as plumbers, machinists, and electricians are the most in demand. Jobs returning from China are lower wage jobs. Mr. Crouch expressed concern that workers not be overtaxed and also underpaid, which would result in a weak middle class. With the decline of the northeast and Midwest, the southeast could be the new economic engine with the right investments in education and infrastructure. Increasing tuition costs are making higher education unattainable. As the United States becomes more diverse, it is important to make sure everyone is educated. Vocational training is important as well.
Responding to Senator Parrett’s question, Mr. Crouch said Kentucky is improving its high school graduation levels compared to other states, but it is important that graduates receive additional education. Higher education should be more affordable, and the state should promote occupational careers and technical training as well.
Newport Aquarium
Eric Rose, Vice President and Executive Director of the Newport Aquarium, asked that the legislature continue to fund Kentucky’s tourism industry. Kentucky tourism has fared better than other states during the economic downtown. He noted the importance of tourism agencies supporting and promoting each other. He asked that the legislature to continue to support tourism with the Tourism Development Act and the hotel lodging and room tax, both of which are important to the industry.
New Businesses in Northern Kentucky
Dan Tobergte, President and CEO of the Northern Kentucky Tri-ED, commended Northern Kentucky University’s College of Informatics and the airport’s efforts to reinvent itself. Both have helped the area economy immensely. He reviewed Tri-ED’s target areas, which include increasing professional office operations, technology oriented projects, and aviation service projects. He mentioned several successful recent projects in the area. Kentucky ranks 11th in Site Selection magazine. Surrounding states are competing much more aggressively than Kentucky. Taxing issues are at the forefront with other states including reducing or eliminating income taxes and other tax restructuring. Corporate income tax reform is needed in Kentucky. The exodus of major manufacturing firms is due more to competitive tax environments in other states. The state’s 2005 tax reduction was helpful.
Mr. Tobergte reviewed the Kentucky Tax Reform Commission recommendations. The Tax Foundation ranked Kentucky the 19th best state tax system, but the system needs to improve to be at the forefront of future investment and job creation. Kentucky’s status as a non-“Right-to-Work” state could hinder job creation. Kentucky could be surrounded by right-to-work states.
Mr. Tobergte said angel investing is critical to job creation and recommended an Angel Tax Credit.
Representative Donohue said Kentucky has been successful in job creation in the manufacturing area, and until he sees otherwise, he cannot support right-to-work.
Responding to Representative Linder’s question, Mr. Tobergte said Kentucky’s strengths include location, lower cost of living, and its work ethic of consistency and quality.
There being no further business, the meeting adjourned at 3:45 PM.